Weeks 10,11,12 – Client Money
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Legal Profession Act 2007 (Qld)
A solicitor is a trustee – meaning they are trusted with the money
This means other obligations and principles of equity are applicable to the handling of money
The usual way of dealing with money mismanagement is a complaint to the Legal Services
Commissioner, or QCAT if serious enough.
To account for ethical handling of someone’s money is the Keeping of Accounts, which is
accounting for client money
Mortensen calls us to take the Integrated Approach to client money management.
 Client Money: trust Account Management for Australian Lawyers
The professional ethical responsibilities and accounting requirements are considered together in
determining how and when client money is to be received and disbursed.
Legal Profession Act 2007 (Qld) and the Legal Profession Regulation 2017 (Qld)
Difference between solicitor’s own money and trust money
Different forms of trust money
 Trust money simpliciter
 Controlled money
 Transit money
 Power money
PowerPoint Slides:
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Lawyers hold millions of dollars in trust on behalf of clients – why?
Only applies to solicitors in jurisdictions with divided profession, QLD barristers cannot.
Obligations come from Statute (LPA 2007 (Qld), LPR 2017 (Qld), Trust and Equity under crim law.
Fiduciary duty – someone or company required to put another person’s interests before their
own.
Trust Money
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Trust money means money entrusted to a law practice in the course of or in connection with the
provisions of legal services and includes:
 Money received by the practice on account of legal costs in advance of providing the
services
 Controlled money received by the practice and Transit Money received by the practice.
 Money received by the practice, that is the subject of a power, exercisable by the practice or
an associate of practice, to deal with the money for another person.
Controlled money means money received or held by a law practice for which the practice has a
written direction to deposit the money in an account, other than a general trust account, over
which the practice has or will have exclusive control.
Transit Money means received by a law practice subject to instructions to pay or deliver it to a
third party, other than an associate of the practice
Power Money means money received by the practice, that is the subject of a power, exercisable
by the practice or an associate of the practice, to deal with the money for another person.
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Debits and Credits
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Ensure that each and every transaction has both a debit and a credit entry, ie both an asset and
a liability entry
Solicitor-Trustee -> Bank
Solicitor-Trustee Creditor ‘debits’ to -> Bank Debtor
Solicitor-Trustee, Creditor -> Beneficiary
Solicitor-Trustee, Creditor -> Beneficiary Creditor
Solicitor-Trustee, Creditor, Credit -> Beneficiary Creditor
Receiving and Depositing Money
EG: Gave solicitor personal cheque to cover professional costs and outlays handling purchase of a
house. Receipt number 0945 and banked on same day for $1000
Receiving and depositing money
- Variations
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Multi-receipts – one cheque received covers a number of different matters. Record sums for
separate matters in ‘Multi-Amt- Column, and amount of cheque in ‘Received Amt’ column.
EFTs – Record on day ADI (Authorised Deposit-Taking Institution (Bank!)) advises that money
was deposited, not day of deposit.
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Dishonoured receipts – Negate receipt by reversing entry on day ADI advises that cheque was
dishonoured
On July 27 20xx, Kenge & Carboy (lawyers) paid $150 to Whitsunday shire council for rates search on
Jarndyce’s behalf. Payment made by trust account cheque, numbered 0092.
Payment is an entry (credit) in cash payments book, while a debit entry in the ledger.
Variation
 Cancelled cheques – Negate payment by reversing entry on day cheque is cancelled. A new
payment may be entered if a replacement cheque is issued.
Internal Transfers
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EG: Kenge & Carboy held $1,500.00 in trust for Jarndyce in relation to the defence of a small debt collection claim brought against
him by Dedlock. In the course of settlement negotiations, it was agreed that $1,000.00 of Jarndyce’s money would be held by Kenge
& Carboy on both Jarndyce’s and Dedlock’s behalf, and not be capable of release to either party without the consent of both Kenge
& Carboy and Dedlock’s solicitor. These arrangements were put in place by a transfer on 4 August 20XX.
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And:
And a separate entry must be recorded in the Journal
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Trial Balance: On 31 August 20XX, the balances in Kenge & Carboy’s individual trust ledgers were
as follows:
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Carstone
Chadband
Flite
Gridley
Guppy
Jarndyce
Jellyby
Skimpole
Snagsby
Vholes
Trial balance (31.08.XX):
$7,600.00cr
$350.00cr
$200.00cr
$3,345.00cr
$1,200.00cr
$850.00cr
$1,000.00cr
$4,000.00cr
$2,500.00cr
$500.00cr
$21,545.00cr
ADI (Bank) Reconciliation:
The Bank statement for Lawyer’s trust account showed closing balance of account 31 August 20XX to
be $27,040.00. + cheque cancellation fee of $35.00 charged. 2 deposits recorded in the statement
needed special attention. $5,500.00 deposited by EFT had not come to the firm’s attention until
advised by the bank on 2 September. $500.00 recorded as deposited on 1 September was of moneys
received late on 31 August, and deposited in the bank’s night safe that day. The statement was also
compared to the cashbook, and showed that three cheques issued through the month (0112, 0119,
0124) had not been cashed by 31 August.
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Controlled Money
 Jarndyce gave written authorisation to Kenge & Carboy on 17 September 20XX to invest
$100,000.00 in an interest-bearing account with the Commonwealth Bank, Mackay, at 6% per
annum for four months from the date funds were available for investment. Interest was to
accrue every two months. He also gave the firm a personal cheque for $100,000.00 that day. The
Commonwealth Bank is an approved ADI.
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And:
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Lawyers Accounts
Lawyer’s bill paid – Office / General Account
Money given in anticipation of paying bill, or for outlays the lawyer has not yet paid
Trust Account or Controlled Money Account
LPA s258 + LPR s58 = Paying bills from trust****(actually these provs say lawyer can take fees).
1. Request or notice of withdrawal and:
a. Costs agreement authorizes payment
b. Instructions from Beneficiary – written or confirmed
c. Outlays ‘already paid’
2. Bill rendered to client
a. No objection to bill in 7 days of delivery
b. Objection within 7 days, but no costs assessment sought within 60 days
Legal Profession Regulation 2017 (Reg 58)(LPA s258(1)(b))
(2) The law practice may withdraw the trust money –
(a) If the practice has given the person a bill relating to the money; and
(b) If –
(i) The person has not objected to withdrawal of the money within 7 days after being
given the bill; or
(ii) The person has objected within 7 days after being given the bill, but has not
applied for a costs
assessment within 60 days after being given the bill; or
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(iii) The money otherwise becomes legally payable.
(3) The law practice may withdraw the trust money, whether or not the law practice has given
the person a
bill relating to the money, if
(a) The money is withdrawn in accordance with –
(i) A costs agreement that complies with the legislation under which it is made and
that
authorises the
withdrawal; or
(ii) Instructions that have been received by the practice and that authorise the withdrawal;
and
(b) The practice, before withdrawing the money, gives or sends to the person –
(i) A request for payment, referring to the proposed withdrawal; or
(ii) A written notice of withdrawal.
(4) The law practice may withdraw the trust money if –
(a) The money is owed to the law practice by way of reimbursement of money already paid
by the law practice on behalf of the person; and
(b) The practice, before withdrawing the money, gives or sends to the person –
(i) A request for payment, referring to the proposed withdrawal; or
(ii) A written notice of withdrawal.
Interest on Lawyer’s Trust Accounts (IOLTA)
Types of IOLTA schemes:
1. Statutory deposit schemes
2. Residual balances schemes
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Legal Profession Act 2007 (as amended)
280 Approval of ADIs
(1) The chief executive may approve ADIs at which trust accounts to hold trust money may be
kept
(2) However, the chief executive may give an ADI an approval under subsection (1) only if the
ADI has entered into an arrangement with the chief executive under section 287.
287 Arrangement with ADI
The chief executive may enter into an arrangement with an ADI about an ADI paying interest to the
department on trust accounts kept by law practices.
Civil Liability
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The Bare Trust
Usual remedies are compensation; account of profits; appointment of receiver; ordering of
accounts
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Liability of principals and partners (13.5-13.15)
LPA s244
Partnership Act 1891 (Qld) ss13, 14
Romano v Chapple, Unreported, SC (Qld), Moynihan J, 2521/1988,
 Re Mayes and the Legal Practitioners Act (1974) 1 NSWLR 19 per Reynolds and Hutley JJA (at 25):
‘It would be no answer generally and certainly not in this case where the appellant neglected his
responsibilities despite warnings that all was not well. Feelings of delicacy in the belief that
queries or checks might be regarded as offensive to the spirit of mutual trust between partners
do not, as claimed, excuse or
justify an abdication of responsibility. Instances of
defalcation by persons of apparently excellent character are not unknown, and every solicitor
should appreciate that there is some risk involved if he allows one partner to be in the position of
a sole practitioner so far as control of the trust account is concerned’
Compensation:
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The usual remedy where there is misappropriation from the trust account
How is loss and entitlement to compensation calculated where multiple amounts/clients?
Keefe v NSW Law Society (1998)
Magarey Farlam Lawyers Trust Account (No 3) [2007]
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Assume a firm has three beneficiaries, as follows:
A $10,000
B $40,000
C $50,000
$100,000
Then, D pays in a cheque for $10,000 for a payment to be made to E
Who has suffered a breach of trust if …?
D’s fund’s clear. There is a payment of $10,000 out of trust, but no book entries are made?
In accordance with Keefe v NSW Law Society, A, B, C and D share rateably
Amt of loss = Proportion of Correct Trust Balance x Total amount lost
A
B
C
D
10,000 x $10,000 = $909.09
110,000
40,000 x $10,000 = $3,636.36
110,000
50,000 x $10,000 = $4,545.45
110,000
10,000 x $10,000 = $909.09
110,000
D’s cheque then is dishonoured so…...
In accordance with Keefe v NSW Law Society, A, B and C share rateably
Amt of loss = Proportion of Correct Trust Balance x Total amount lost
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A
B
C
10,000 x $10,000 = $1000
100,000
40,000 x $10,000 = $4000
100,000
50,000 x $10,000 = $5000
100,000
D’s funds do end up clearing. The books indicate that a payment has been made for D to E, but it is
really made to F?
In accordance with Magarey Farlam Lawyers Trust Account (No 3), D bears the whole loss
D
$10,000
Account of Profits
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Either a profit or a secret commission
Boardman v Phipps [1965]
How to allocate money removed from the trust account, without attribution to any particular
beneficiary?
Duty to give accounts
Appointment of receiver
Tribunal Jurisdiction
• Compensation ordered by the Legal Practice Committee or QCAT
• Up to $7,500 for each complainant – LPA 2007 (Qld) ss 466(3)
• Legal Services Commissioner v Towers [2006] LPT 003
• Re Marsden (1999) 5 BRDA 8
Fidelity Fund
Criminal Responsibility
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Chapter 15, Mortensen
Penalty regime under statute (15.1)
Stealing – Criminal Code (Qld) ss391, 393
Fraud
Higher penalties for lawyers?
Professional Discipline
The right to practice and certification
Legal Profession Act 2007 (Qld) S44, Sch2, s(9)(j), 46(2), s60
Cheney v Queensland Law Society [2001]
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QCAT – Queensland Civil & Administrative Tribunal
Legal Profession Act 2007 (Qld) s456(2):
• Recommended removal (‘strike off’ or ‘disbarment’)
• Cancellation or suspension of practising certificate
or conditions on certificate
• Public reprimand
• Employment ban
• Fine up to $100,000
• Compensation
• CLE
• Supervised/managed practice
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Legal Profession Act 2007 (Qld) s458(2):
• Public reprimand
• Fine up to $10,000
• Compensation
• Managed practice
• Ban on employment of non-lawyer (s458(4))
Purpose of discipline
Legal Services Commissioner v Towers [2006] LPT 003
Council of the Queensland Law Society v
Wakeling [2004] QCA 42
 Reporting obligations s260 LPA
Legal Services Commissioner v Devenish [2006] LPT 008
Some practical advice
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Cases:
Professional Discipline
 Cheney v Queensland Law Society [2001]
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Jalmoon Pty Ltd (in liq) v Bow [1997]
 Jalmoon going into liquidation, sued Bow, a trustee solicitor, for transferring funds from
company to beneficial owner of company in breach of trust. The defendant, the solicitor,
lost the case because as counsel deemed it ‘impossible to hold the defendants behaviour as
reasonable’.
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Legal Services Commissioner v Towers [2006] – 48 year old man, excessively charging clients. He
was struck off the list, at his request, which may allow him to re-apply in the future. 4th and 5th
charges was where he withdrew $154 347.32 for his costs out of a $200 000 Trust he was in
charge for by Mr and Mrs Roche. 2nd and 3rd charge was: he withdrew $65 000 from a trust
account to put it in his own trust account with higher interest. He did hand back all this cash
with interest.
Cleared Funds:
 Legal Services Commissioner v Devenish [2006] Joint Beneficiaries
 Queensland Law Society v Wakeling [2004]
 Legal Services Commissioner v Twohill [2005]
Civil Liability
 Target Holdings Ltd v Redferns [1996]
 Youyang Pty Ltd v Minter Ellison (2003)
Compensation
 Keefe v NSW Law Society (1998)
 Magarey Farlam Lawyers Trust Account (No 3) [2007]
Account of Profits
 Boardman v Phipps [1965]
Reporting obligations s260 LPA
 Legal Services Commissioner v Devenish
[2006] LPT 008
Statutes:
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S260 Legal Profession Act 2007
 Reporting certain irregularities and suspected irregularities
 (1) As soon as practicable after a legal practitioner associate of a law practice becomes
aware that there is an irregularity in any of the practice’s trust accounts or trust ledger
accounts, the associate must give written notifice of the irregularity to:
 (a) The Law Society, and
 (b) If a corresponding authority is responsible for the regulation of the accounts concerned –
the corresponding authority
LPA s246 – in QLD, barristers prohibited from holding trust funds
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LPA S258 = Paying Bills from trust
1. A law practice may do any of the following in relation to trust money held in a general
trust account or controlled money account of the practice for a person:
A. Exercise a lien, including a general retaining lien, for the amount of legal costs
reasonably due and owing by the person to the practice
B. Withdraw money fo payment to the practice’s account for legal costs owing to the
practice if the relevant procedures or requirements under this Act or prescribed under a
regulation are complied with
C. After deducting any legal costs properly owing to the practice, deal with the balance as
unclaimed money under section 713.
LPR s58(1) – Trust money, held in a general trust account or controlled money account of a law
practice for a person, may only be withdrawn, for payment of legal costs owing to the practice
by the person.
LPA 244 / Partnership Act 1891 s13(1) – Any wrongful act of omission of any partner in a firm,
acting in the ordinary course of the business of the firm, with authority, if loss or injury is caused
to any person not being a partner in the firm, or a penalty is incurred, the firm is liable for the
loss – to the same extent as the partner so acting or omitting to act.
LPA s418 - Unsatisfactory professional conduct" includes conduct of an Australian legal
practitioner happening in connection with the practice of law that falls short of the standard of
competence and diligence that a member of the public is entitled to expect of a reasonably
competent Australian legal practitioner.
LPA s419(1) – Professional Misconduct Includes:
 (a) unsatisfactory professional conduct of an Australian legal practitioner, if the conduct
involves a substantial or consistent failure to reach or keep a reasonable standard of
competence and diligence; and
 (b) conduct of an Australian legal practitioner, whether happening in connection with the
practice of law or happening otherwise than in connection with the practice of law that
would, if established, justify a finding that the practitioner is not a fit and proper person to
engage in legal practice.
QCAT – Queensland Civil & Administrative Tribunal
Legal Profession Act 2007 (Qld) s456(2):
• Recommended removal (‘strike off’ or ‘disbarment’)
• Cancellation or suspension of practising certificate
or conditions on certificate
• Public reprimand
• Employment ban
• Fine up to $100,000
• Compensation
• CLE
• Supervised/managed practice
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Legal Profession Act 2007 (Qld) s458(2):
• Public reprimand
• Fine up to $10,000
• Compensation
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Managed practice
Ban on employment of non-lawyer (s458(4))
LPA s260 – Reporting Obligations
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